Innovation in Regulation: A Path Forward for U.S. Tech Competition with China — 2022 China Focus Essay Contest Winner 

The 2022 China Focus Essay Contest English entries winners are William Yuen Yee, who recently graduated from Columbia University, and Natasha Lock, who is a recent graduate of Yenching Academy. Their essays answered timely questions in China and the United States regarding high-tech regulation and disinformation respectively. China Focus partnered with the UC-Fudan Center on Contemporary China and the 1990 institute to offer each winner $1000! Congratulations to our 2022 winners!

The essay question for the high-tech regulation topic is the following:

Both China and the U.S. face the challenge of large tech companies wielding huge influence in their respective economies and societies. How to regulate them without stifling growth or innovation is a key consideration for policymakers. Such regulations are also fraught with political and technological implications for both countries.

Write an essay that analyzes recent regulatory activities directed against large tech companies in both countries and considers their political, economic, or technological consequences. If appropriate, outline what principles should undergird a sensible regulatory framework that will promote innovation while protecting consumers.

Here is the entry from William Yuen Yee.

The opening line of U.S. Republican Senator Marco Rubio’s Twitter bio proudly boasts: “Banned in & sanctioned by China.” Rubio is well-known for his hardline stance against China, previously stonewalling President Joe Biden’s pick of veteran diplomat Nicholas Burns to serve as the U.S. ambassador to China because “a weak ambassador is worse than no ambassador at all.” Yet when it comes to the issue of regulating large tech companies, Rubio shares a surprising amount in common with Chinese President Xi Jinping.  

Xi calls it “common prosperity”; Rubio calls it “common good capitalism.” While the two terms are rooted in highly distinct contexts and histories, both reject laissez-faire approaches to the markets and the economy. Both challenge the idea that what free, unrestrained markets determine to be most efficient is best — a premise that has mostly spread across the world since the 1980s, with the parallel ascents of Margaret Thatcher in Britain, Ronald Reagan in America, and Deng Xiaoping’s economic reforms in China. 

But the realities of the hostile U.S-China relationship — likely at their lowest levels since before rapprochement in 1972 — make any genuine collaboration on issues related to technology regulation quite challenging, despite many areas of overlapping interests and perspectives. It is difficult to overlook China’s refusal to intervene and potentially prevent or at least publicly disavow Russia’s invasion of Ukraine. As such, the most feasible path forward for the U.S. lies in a two-pronged approach to this rapidly intensifying rivalry with China: promoting indigenous tech innovation at home and collaborating with the European Union on tech regulation. Otherwise, China and its non-democratic partners might soon overtake the West in both.  

Common Prosperity and Unequal Growth

Under President Xi’s common prosperity campaign, China has sought to restrain the influence of big tech companies and reduce economic inequality. There have been over 50 regulatory actions against Chinese firms for alleged offenses like antitrust abuses and data privacy violations. Of course, such crackdowns do not come without serious consequences. Last July, authorities prevented the ride hailing startup Didi from registering new users and ordered app stores to remove its services amid a cybersecurity investigation. Didi subsequently reported an operating loss of $6.3 billion for the first nine months of 2021. The value of internet giant ByteDance, which oversees TikTok, has plummeted in private markets by over $50 billion.  

China’s biggest companies have scrambled to line up behind the central government’s initiative and showcase their charitable bona fides. Last September, Alibaba announced that it would invest $15.5 billion in “common prosperity” projects like rural health care and insurance for delivery workers. Internet giant Tencent, which owns China’s largest messaging app WeChat, set aside $7.7 billion for a fund dedicated to improving health care coverage and rural economic development.  

While countries across the world like China strive to regulate big tech companies, the United States “dithers” on the issue. Despite polls showing that 56 percent of Americans support increased restrictions on U.S. tech giants like Meta and Google, Washington has undertaken little action in this arena. U.S. big tech companies have shrewdly seized upon China as a convenient bogeyman to fend off criticisms about their increasingly monopolistic tendencies. Meta senior executive Sheryl Sandberg used what the Brookings Institution’s Tom Wheeler called the “competition with China” card in a CNBC interview, claiming that regulation would put the U.S. at a competitive marketplace and national security disadvantage to China.  

It is true that America’s dearth of big tech restraints has helped pave the way for its leadership in innovation. America’s $1.8 trillion tech industry is the most valuable in the world and accounts for 33 percent of global market share. In 2021, American companies held eight of the top ten spots on the list of global companies ranked by market capitalization, including the top three: Apple, Microsoft, and Alphabet. No Chinese companies were listed in the top ten. The U.S. retains the edge in many critical technological areas like 5G, artificial intelligence (AI), quantum computing, and semiconductors “for now,” according to a Wall Street Journal analysis, although China’s massive investments in these fields are rapidly closing the gap.  

But America’s tech superiority has not come without consequences. The United States boasts the largest levels of inequality among advanced countries, with the highest income inequality of all G7 nations in 2020. America’s top 1 percent own 35 percent of the nation’s wealth. Chief executive compensation increased by 937 percent between 1978 and 2013, while the average American worker’s compensation rose by just 10.2 percent during that same period, after adjusting for inflation.  

Politicians and constituents across both sides of the U.S. political aisle seem to agree that the government must do more to constrain the influence of its tech giants. But with America’s enduring faith in free markets and historical mistrust of government intervention, such regulations will likely require time and piecemeal implementation. 

Steps for Regulating U.S. Big Tech  

Regulating big tech companies without stifling growth or innovation, particularly amid a rapidly intensifying geopolitical race for tech dominance, remains a preeminent challenge for U.S. policymakers. Still, it is time for Washington to turn its attention to this other critical aspect of the global tech race — to seize the initiative not just in innovation, but also in regulation.  

Washington can start by targeting reforms in two areas: content moderation and privacy. One idea might be to target algorithmic amplification — harmful, addictive content that increases user engagement — by removing it from protection under Section 230 of the 1996 Communications Decency Act. Courts have interpreted this legislation as providing tech companies with mostly blanket immunity through “safe harbor” for harm caused by third party content. China unveiled a law with similar aims in June 2021 that requires parents to install software on personal electronic devices to protect their children from harmful Internet content and to manage their time spent online.  

Another idea is to build upon the California Computer Privacy Act of 2020 and compel tech corporations to “opt-in” on data usage. Currently, consumers must actively “opt-out” of data collection and usage. This reform would shift the burden from consumers to corporations, requiring each company that holds personal data to obtain explicit permission from the user before using or transferring such data. The European Union’s General Data Protection Regulation (GDPR), the world’s strictest privacy and security law, took aim at a similar issue by requiring “anonymous” data collection, which EU regulators define as “irreversibly preventing identification of the data subject” accounting for all the means “reasonably likely to be used” for identification.  

The Race for Global AI Regulation 

In some respects, China has led the way on privacy and artificial intelligence regulation. The State Administration for Market Regulation, a government regulatory body, has proposed additional regulations that prohibit using data and algorithms that dictate user behavior or “hijack, traffic, interfere, or impose barriers” on the operations of other internet services. On March 1, China implemented what many consider to be the world’s most ambitious effort to regulate AI. Drafted by the Cyberspace Administration of China, the rules forbid companies from using personal information to offer users different prices for a product or service, imposing significant new restrictions on major ride-hailing, e-commerce, streaming, and social media companies.  

The European Union has also proposed a sweeping new Artificial Intelligence Act to regulate AI. A preeminent regulatory superpower, Brussels previously implemented the General Data Protection Regulation to protect consumer privacy in 2018 and passed a Digital Markets Act in March that will significantly restrict the influence of tech giants across its bloc of 27 countries. 

Russell Wald at Stanford’s Institute for Human-Centered Artificial Intelligence has described Washington as “woefully behind” in the global race over AI regulation. Former Google CEO Eric Schmidt recently noted that “China is producing more AI papers than the US.” An absence of U.S. leadership in this area risks allowing China to write the future global rules of the road. While American and European lawmakers tend to emphasize markets and individual rights, China has prioritized its own conception of societal wellbeing, a significant distinction that has and will continue to influence its AI regulatory principles. To the winners of the race for regulation will go the spoils of the ability to shape AI governance regimes worldwide. 

Time for Innovation in Regulation  

First, the U.S. should start by collaborating with the EU on the Artificial Intelligence Act.  Proposed in April 2021, this landmark legislation requires software developers using “high risk” AI like facial recognition and biometric identification technologies to comply with a comprehensive list of technical and auditing requirements. While such regulations have discomfited some in Washington, U.S. businesses will likely inevitably have to conform to these to access the lucrative European market. There is broad agreement between Brussels and Washington on the importance of promoting ethical AI, although both sides differ on how to achieve that objective. No matter the disagreements, the geostrategic implications of regulating critical technologies like AI should drive the two blocs together. Both share a substantial interest in preventing the spread and use of AI technologies by authoritarian states like China and Russia for mass surveillance. 

Second, the United States and European Union should work together to promote overall active democratic governance of technology through the new EU-U.S. Trade and Technology Council. Again, a significant area of common interest and vital strategic importance lies in artificial intelligence. “Whoever leads the world in artificial intelligence in 2030 will rule the world until 2100,” one Brookings Institution analysis noted. The U.S. and EU should proactively share information between national standard setting bodies and develop consistent processes and criteria for assessing AI systems. Such work aligns with the Biden administration’s aims to advance technology for democracy, a top agenda priority at the U.S.-led Summit for Democracy last December.  

Third, it is time for U.S. policymakers to vigorously question some of the fundamental economic assumptions that underpinned the “Washington Consensus” of the 1980s. The emphasis on lowering corporate income taxes and deregulation, mixed with a strident belief that private firms know better than the government, is ripe for reform. Enhanced scrutiny of Milton Friedman’s “shareholder primacy” doctrine will pave a path forward for U.S. regulation on big tech. Passing the bipartisan legislation introduced by Democratic Senator Amy Klobuchar and Republican Senator Chuck Grassley, which aims to address concerns about tech giants serving as gatekeepers to digital goods and services, is a promising start.  The challenge before the United States is multifaceted. While it may be desirable, U.S.-China cooperation on tech regulation seems politically infeasible for the foreseeable future. Kurt Campbell, The Biden administration’s “Asia czar,” has declared Washington’s era of engagement with Beijing to be over. President Biden’s competitive and confrontational China policy, not too dissimilar from that of his predecessor, reflects a growing bipartisan consensus among Washington policymakers — and people across this country — that the U.S. should not work to “change” China but rather to “beat it.” In this realpolitik vein, the options for collaboration between Washington and Beijing on regulating tech giants, despite shared concerns about their disproportionate influence, are limited. For now, the U.S. should bolster innovation at home to remain atop the race for global tech supremacy while collaborating with the EU to regulate areas of common interest like artificial intelligence — before China leads the world in both.

Image Source: Bangkok Post

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William Yuen Yee

William Yuen Yee is the 2022 Michel David-Weill Scholarship laureate at Sciences Po, where he will pursue a master’s degree in International Governance and Diplomacy before attending Harvard Law School. He graduated summa cum laude and Phi Beta Kappa from Columbia University with a bachelor’s degree in Political Science and East Asian Studies. He currently researches U.S. policy in the Asia-Pacific for Professor Thomas Christensen with the Columbia-Harvard China and the World Program. His writing on China’s foreign relations has appeared in the Center for Strategic and International Studies, The Diplomat, Jamestown China Brief, and SupChina. His research interests include international trade, modern Chinese history, and international security.

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